TOKYO, May 31 (Reuters) - The U.S. dollar hovered near athree-week low against the euro on Friday after unexpectedlyweak U.S. economic data dampened expectations that the FederalReserve will reduce its monetary stimulus soon.

While the yen showed little immediate response to a slew ofgenerally positive Japanese economic data, traders were focusedon whether the data would help stem a steep 6-day slide in Tokyoshares since late last week.

The Nikkei average rose 1.7 percent in early trade,easing worries that further falls could prompt moreprofit-taking in dollar/yen.

U.S. data showed weekly initial jobless claims unexpectedlyrose last week and pending home sales increased less thanexpected. The U.S. economy grew at a slightly slower pace in thefirst quarter than initially estimated.

"The market had gone a bit too far in expecting the Fed totaper its bond buying. The dollar may be consolidating for now,"said Ayako Sera, senior market economist at Sumitomo Trust Bank.

The data also supported the euro, which was trading at$1.3045, flat from late U.S. levels but near a three-weekhigh of $1.3062 set on Thursday.

The dollar's index against a basket of six major currencieslast stood at 83.051 after hitting a two-week low of 82.955 on Thursday.

The dollar gained 0.3 percent in early Asian trade to 101.02yen, as expectations of month-end buying by Japaneseimporters lifted the U.S. currency off a three-week low of100.46 yen hit on Thursday.

The yen had also come under pressure after sources familiarwith the deliberations told Reuters on Thursday that Japan'sGovernment Pension Investment Fund (GPIF) was considering a moreflexible approach to allocations, which could let its investmentin domestic stocks grow in rallying markets.

But analysts also noted that any change in the pensionfund's investment stance will come in next year at the earliestand will have no immediate impact on the fund's investmentflows.

Data showed Japan's core consumer price index fell 0.4percent from a year earlier in April, in line with expectations.

But core CPI in Tokyo for May, a leading indicator, rose 0.1percent, much stronger than economists' average forecast of a0.2 percent fall. Job availability also improved to the bestlevel since June 2008.

Industrial output also beat expectations, rising 1.7 percentin April from the previous month.

Still, on the month, the dollar looks on course to log itseighth consecutive month of gains versus the yen, the longestsuch period since 1995-96.